Thursday, August 29, 2013

A Move to Henceforth Be Known as a Callahan's Choice

Lawyers in a dispute with their former clients are given a choice between fronting fees for an arbitration or waving their right to arbitrate and defending their case in court.

Some indigent plaintiffs in a toxic mold litigation sued their attorneys for strongarming them into a bad settlement. The attorneys, relying on an un-initialed arbitration clause that was attached as page eight of a seven- page retainer agreement where every other page was signed or initialed by the client, successfully compelled arbitration of the dispute. Plaintiffs then moved the court for an order that, as indigents, they should not be required to bear the up front costs of the arbitration, because requiring them to advance the arbitrator’s fee would effectively deprive them of a forum for their dispute. The superior court denied the motion and the plaintiffs appealed.The court of appeal noted that, when, as here, an arbitration agreement is silent on the cost issue, Code of Civil Procedure § 1284.2 would generally require the parties to split the costs of the arbitration pro rata. That said, the arbitration provision made no attempt to ensure that clients of limited means would have access to the arbitral forum it requires. Relying on cases that determined that arbitration provisions that allocate fees in a way that prevents people of limited means from vindicating their rights were unconscionable, the court held that it would be unfair to require an indigent plaintiff to pay up-front arbitration costs that she cannot afford as a condition to commencing an arbitration. But instead of just holding that that agreement is unenforceable—as had been done in the prior cases—the court gave the defendant a choice: sport the plaintiffs their share of the arbitrator’s fees or waive the right to arbitrate.